High performance liquid chromatography studies documented the presence of an enzyme activity, N-acetylated alpha-linked acidic dipeptidase (NAALA dipeptidase), in rat brain membranes that cleaves the endogenous brain dipeptide, N-acetyl-L-aspartyl-L-glutamate to N-acetyl-aspartate and glutamate. With ion exchange chromatography, which quantitatively separated [3,4-3H]glutamate from N-acetyl-L-aspartyl-L-[3,4-3H]glutamate, we found that NAALA dipeptidase activity was essentially restricted to nervous tissue and kidney. We characterized NAALA dipeptidase activity in lysed synaptosomal membranes obtained from rat forebrain. Membrane-bound NAALA dipeptidase activity was optimal between pH 6.0 and 7.4 at 37 degrees C. Eadie-Hofstee analysis of kinetic data revealed a rather high apparent affinity for N-acetyl-L-aspartyl-L-glutamate with a Km = 540 nM and a Vmax = 180 nM/mg of protein/min. While NAALA dipeptidase showed a requirement for monovalent anions such as Cl-, the polyvalent anions phosphate and sulfate inhibited enzyme activity 50% at 100 microM and 1 mM, respectively. The divalent metal ion chelators EGTA, EDTA, and o-phenanthroline completely abolished activity, which was partially restored by manganese. Treatment of membranes with 1 mM dithiothreitol abolished NAALA dipeptidase activity. NAALA dipeptidase activity was also sensitive to the aminopeptidase inhibitors bestatin and puromycin, although not to the selective aminopeptidase A inhibitor amastatin. Structure-activity relationships inferred from inhibitor studies suggest that this enzyme shows specificity for N-acetylated alpha-linked acidic dipeptides. NAALA dipeptidase was also potently inhibited by the excitatory amino acid agonist L-quisqualate. Comparison of the properties of NAALA dipeptidase to those of previously characterized enzymes suggests that this is a novel peptidase which may be involved in the synaptic degradation of N-acetyl-L-aspartyl-L-glutamate.